K.Babu Rao, vs The Executive Engineer,
2021 Latest Caselaw 2959 AP

          HIGH COURT OF ANDHRA PRADESH AT AMARAVATHI

                  MAIN CASE No.W.P.No.14599 of 2021


                                      PROCEEDING SHEET

Sl.                                                                                  Office
                                             ORDER

No    DATE                                                                           Note
      .08.2021 RRR, J
                                        I.A.No.1 of 2021

The petitioner had entered into a contract dated 29.01.2019 for executing the work of "special repairs to Movva - Ghantasala Road via Pedamuttevi from km 0.6000 to 9.600 in Krishna District". This work was to be executed within six months, i.e., by 28.07.2019.

2) The petitioner states that he had completed part of the work i.e. wet mix Mecadam and shoulders, to a tune of Rs.1.54 crores, against the work value of Rs.2,80,09,679.48, by the end of March 2019 itself. As payment for the works executed had not been released, the petitioner had suspended further work and had given representations dated 02.01.2020, 20.02.2020, 13.08.2020 and 08.09.2020 for payment of money for the work executed till then. The respondents finally, on 14.12.2020, paid an amount of Rs.1,18,49,796/- against the work said to have been done by the petitioner.

3) Upon receipt of this money, the petitioner again showed interest in resuming the balance work. In view of the willingness of the petitioner, the respondents had extended the time for execution of the work up to 31.03.2021. However, the petitioner, on the ground that the condition of the road had worsened and it would not be possible to take up B.T. Layer, had requested the department to close the contract.

4) It is the case of the petitioner that despite requests made by the petitioner, the Executive

Engineer, R & B, who is arrayed as the 1st respondent, had issued a unilateral letter dated 02.07.2021 granting extension of time and calling upon the petitioner to execute the work, failing which the contract would be terminated in terms of Clause-60(a) of the General Conditions of Contract. Thereafter, the 1st respondent addressed a letter dated 12.07.2021 calling upon the 4th respondent to en-cash and remit the bank guarantee amount of Rs.7,00,300/- under B.G.o.31/2019, dated 28.01.2019 as Earnest Money Deposit.

5) Aggrieved by the said letter of invocation of bank guarantee, the petitioner has approached this Court by way of the present writ petition.

6) Sri G. Rama Gopal, learned counsel for the petitioner, while arguing on the maintainability of the writ petition, relied upon the judgments of the Hon'ble Supreme Court in ABL International Limited v. Export Credit Guarantee [)2004) 3 SCC 553] and Karnataka State Forest Industry v. State of Karnataka [(2009) 1 SCC 150] to contend that the disputes arising out of the contractual obligation of the State are amenable to the jurisdiction of this Court under Article 226 of the Constitution of India.

7) The Hon'ble Supreme Court, in the aforesaid judgments, has held that the disputes arising out of the contracts are amenable to the jurisdiction of this Court at the discretion of the Court. However, the question - whether the present dispute is amenable to the jurisdiction of this Court, is a matter which is being left open.

8) On a prima facie view of the matter, this Court is taking up this writ petition while leaving the question itself open for final adjudication.

9) The impugned letter dated 12.07.2021 issued by the 1st respondent states that notices had been issued to the petitioner to complete the work and the petitioner had not started the work. It goes on to state that action would be initiated to terminate the contract as per the agreement conditions under Clause-60 (a) of the special conditions of the contract.

10) Sri G. Rama Gopal, learned counsel for the petitioner would submit that the contention of the respondents that the petitioner had delayed the work cannot be accepted. Clause-42 of the agreement states that payment would be done, for the work done, in a timely manner. However, the respondents chose not to make any payments to the petitioner for more than 1½ year after he had executed part of the work. In such circumstances, the petitioner cannot be blamed for non-continuation of the work.

11) Sri G. Rama Gopal would also submit that under Clause-26.2, the Earnest Money Deposit given by the petitioner can be forfeited only upon suitable action being taken in accordance with Clause-60 of the Special Conditions of contract. He submits that this Clause comes into play only at the stage of termination of the contract and since no such decision or notice has been given to the petitioner, the question of forfeiture of Earnest Money Deposit would not arise.

12) Sri G. Rama Gopal also relies upon the judgment of the Hon'ble Supreme Court in Gangotri Enterprises Limited v. Union of India and ors., [(2016) 11 SCC 720], where the Hon'ble Supreme Court in similar circumstances, had granted injunction restraining invocation of bank guarantee.

13) The learned Government Pleader for Roads and Buildings, on the other hand, submits that the petitioner having taken up the contract had executed part of the contract and in view of the incomplete work executed by the petitioner, the respondents are entitled to terminate the contract and also forfeit the Earnest Money Deposit given by way of bank guarantee. He further submits that the grounds on which an injunction can be granted against invocation of bank guarantee are highly restricted and none of the said grounds are available in the present case.

14) In Gangotri Enterprises Limited v. Union of India and ors., the facts of the case, in short, were:-

The petitioner in that case had entered into two separate agreements for two separate works, which were not connected with each other with the respondents. A bank guarantee was given as security in one contract and the said contract had been completed to the satisfaction of the respondents and no claim could be made against the petitioner in that contract. However, there were certain disputes in the second contract and the respondents invoked the bank guarantee given in the first contract against the claims made in the second contract.

The petitioner therein sought an injunction against the invocation of the said bank guarantee and after various rounds of litigation the matter had reached the Hon'ble Supreme Court. The Hon'ble Supreme Court took the view that since the disputes in the second contract were the subject matter of an arbitral

proceeding and since the claims in the second contract were in the nature of damages, had held on the first count that the respondents could not have invoked the bank guarantee given as security for another contract, and secondly on the ground that unless the amounts were crystallized, the bank guarantee could not have been invoked in any event.

15) In the present case, the question of invocation of bank guarantee would only arise upon termination of the contract under Clause-60. This is the stipulation in Clause-23.1 which provides for forfeiture of the Earnest Money Deposit and consequent invocation of the bank guarantee. The letter of invocation itself states that it is proposed to terminate the contract. It follows that the Earnest Money Deposit can be forfeited only upon cancellation of the contract and such a stage has not been reached.

16) In such a situation, invocation of bank guarantee, at this stage, may not be permissible.

17) Sri G. Rama Gopal, learned counsel for the petitioner had also raised an issue that the amounts were still due to the petitioner and as such any claims of the respondents could only be adjusted, at worst against the amounts due to the petitioner which were higher than the amount payable under the bank guarantee. This is an issue of fact and consideration of the said disputed question of fact may not be appropriate in the present situation.

18) However, since this Court is of the opinion that an injunction can be granted for other reasons, there shall be an interim suspension of the letter of the 1st respondent dated 12.07.2021 issued to the 4th

respondent and a consequential direction to the 4th respondent not to en-cash or remit the bank guarantee amount to the 1st respondent, till further orders of this Court.

_________ RRR, J Js